Fannie Mae-No Politics (FNMA)

[Bryndon]

“If the 5th Circuit converts the SPS to commons, I believe the claim will go up accordingly.”

I think the “conversion” remedy is fraught with so many questions, unknowns, and ridiculous complexities that it won’t happen. For example, what would be the conversion ratio that would take a combined $2 million senior preferred shares with a stated value of approximately $193.5 billion and turn them into common shares worth the same amount? It’s impractical, and completely ignores the fact that the U.S. Treasury has been effectively repaid.

Our approach is, and always has been, very straight forward and easy to understand – the Fifth Amendment derivative cases in the USCFC address the NWS directly on behalf of the companies. And, if we are successful, it could very well lead to an unwinding of the NWS. Here’s how that might look:

From the first quarter of 2013 through the second quarter of 2019, the companies paid approximately $245.9 billion in senior preferred dividends. And by December 31, 2020, their accumulated deficits (normally referred to as retained earnings) was $175.2 billion.

If these dividend payments were recharacterized quarterly between a dividend payment (10.0% APR) based on that quarters’ opening balance of the senior preferred stock and the difference as a redemption payment on the same security it would produce the following results:

1) As of September 30, 2017, the senior preferred stocks would have been fully redeemed.

2) As of December 31, 2020, the retained earnings and total equity balances would have been $45.2 billion and $68.6 billion, respectively.

Unwinding the net worth sweep is simply a return of approximately $26.9 billion to the companies and two journal entries to record the return of funds, the redemption of the senior preferred stock, and a corresponding credit to retained earnings.

So, at a minimum, we’re asking the court to order the return of approximately $220.4 billion in cash ($26.9 billion) and write-downs ($193.5 billion).